Floating Structures: GST Rates & HSN Code 8908 Guide Introduction The size of a massive ship like a large tank is easy to recognize. Such ships have existed in the world for decades as a vessel to move goods and people around the planet. But what happens when one of such huge ships is worn out? They are often sent to the ship-breaking industries to be reused and recycled.
The process of selling and importing these massive floating structures into India for them to be dismantled involves specific tax rules under the Goods and Service Tax (GST). But it is confusing whether we should call it an import of a ship or an import of raw materials?
This article aims to see through the complexities and explain the core classifications focusing mainly on the rules of HSN Code 8908. This will help understand the difference between a working ship and a structure for breaking up and how different they are taxed.
HSN Code 8908 To properly tax anything, the government of India must know what it is and how it can be compartmentalised. This is done using what is known as Harmonised System of Nomenclature (HSN) which is a global process of classifying subjects.
Learn the difference between HSN and SAC codes under GST.
Chapter 89 of the HSN is dedicated entirely to Ships, Boats and Floating Structures. However, the chapter is divided into different codes based on the vessel’s type, size.
The category of HSN 8908 is specifically for ships to be scrapped. They are actually “goods” but their value depends on how much materials can be recovered from them. This can include steel, brass or machine parts that can be used for operational purposes.
Tax Rationale: This code is specifically titled “Vessels and other floating structures for breaking up.” This code is not for working ships. This code is for ships, boats or platforms that are being bought and sold to be broken up and recycled. Click here to know more about GST Rate & HSN Code for Ships, Boats and Floating Structures.
GST Rates for Floating Structures under HSN 8908 HSN Code Description GST Rate 8908 Vessels and other floating things for breaking 5%
Why the 5%? This rate is interesting and a special concessional rate designed for this specific segment of the industry. It is an interesting mid as it is higher than the tax on some basic essential goods but lower than the standard tax on most finished products ( which is 18% or 12%) The government treats this transaction as an intermediary step, meaning that the true tax comes way way later when the broken up metal and other things like scrap iron are sold by the ship to a factory, which often happens at a higher rate tax (18% on scrap sales). Working Ship vs. Scrap Material New or Working Ship (higher rate) If a company buys a new ferry that is a sale of a capital goods. Then the situation will be different. Then, the HSN Code would be 8901. The GST rate for services related to vessels (like repair, maintenance, or chartering) is generally 18%. The sale of the vessel itself might fall into a higher slab depending on its type and use. Ship for breaking up (5% rate) The moment the transaction document clearly states that the ship is sold for breaking purposes, the HSN code falls under 8908 and the GST rate changes to 5%. This rate applies to the value of the ship as a unit being sold to the breaking of it. This ensures that the taxation is done correctly. Learn here about GST on Scrap Materials with Scrap HSN Code .
The Reverse Charge Rule When a foreign company sells a retired ship to an Indian ship breaking yard, the tax involves this new mechanism known as Reverse Charge Mechanism (RCM).
What is an RCM? Usually the seller collects the tax (GST) from the buyer and then deposits it with the government. With RCM, the rules are 180 degrees flipped:
The Seller (Foreign Company): They sell the ship to the Indian buyer. Since they are outside India, they do not have an Indian GST registration.The Buyer (Indian Company): They are responsible for paying the GST directly to the government on behalf of the foreign seller.Why RCM? It is much easier for the Indian government to collect tax from a registered Indian company than to chase a foreign company that has no local tax registration. This makes the import process smoother for these large, specialised smoother transactions.
Conclusion The taxation of floating structures sold for breaking up is a great example of how the GST framework uses precise codes to simplify complex, international transactions. The key takeaway is that HSN 8908 is reserved specifically for vessels that are meant t o be broken, demolished and destroyed to be recycled again for usage. This attracts a concessional tax of 5% GST rate which is paid by the Indian buyer under the Reverse Charge Mechanism. This system ensures both regulatory compliance and a streamlined process for a major industrial activity in India.
FAQs 1. Does a small fishing boat sold for scrap also fall under HSN 8908? Technically yes if it is being sold for the purpose of breaking up, it does fall under the definition of a “vessel and other floating structure for breaking up.” However, in real life, this code is primarily used for large-scale commercial and industrial vessels imported specifically for ship breaking industries.
2. If I charter a commercial ship for a year, what is the GST Rate? Chartering a ship ( renting it for commercial use) is treated as a service. The GST rate for the service of transportation of goods by a vessel is typica;;y 0% if the destination is outside of India. Generally, chartering a ship falls under the 18% tax slab in India.
3. Does the 5% GST rate include the IGST and Compensation Cess? The 5% rate for HSN 8908 is the total tax that is applicable. For imported ships, this is paid as Integrated Goods and Service Tax (IGST). The rate is effectively 5% and does not generally attract the GST Compensation Cess, making the process straightforward.
4. What is the benefit of the Reverse Charge Mechanism (RCM)? The RCM is beneficial because it simplifies the tax for the foreign seller. Since the Indian buyer handles the tax payment, the foreign seller does not need to worry about the complex tax processes of India. This helps smoothen out the international sale process
5. What if a ship bought under HSN 8908 is later repaired and sold as a working vessel? That would likely lead to a serious tax complication, please avoid it! If a vessel is bought under HSN 8908 (5% GST for breaking up) but the buyer later decides to repair and sell it as a working vessel (which attracts a higher GST rate), the authorities would likely view this as a misuse of the tax code. The buyer would be liable for penalties.
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